INFORMATION NOTE NUMBER 16, SEPTEMBER 2009

Agricultural Subsidies in
the WTO Green Box: Ensuring
Coherence with Sustainable
Development Goals

Do the World Trade Organization’s rules on ‘green box’ farm subsidies

allow both rich and poor countries to achieve important goals such
as food security, or do they worsen poverty, distort trade and harm
the environment?

Current WTO requirements set no ceiling on the amount of green

box subsidies that governments can provide, on the basis that these
payments cause only minimal trade distortion. Governments are
thus increasingly shifting their subsidy spending into this category,
as they come under pressure to reduce subsidies that are more
directly linked to production. However, growing evidence suggests
that green box payments can affect production and trade, harm
farmers in developing countries and cause environmental damage.

This information note summarises some of the findings of the

forthcoming ICTSD book “Agricultural Subsidies in the WTO Green Box:
Ensuring Coherence with Sustainable Development Goals”, eds. Ricardo
Meléndez-Ortiz, Christophe Bellmann and Jonathan Hepburn. For further
information about this publication, please visit:
http://www.cambridge.org/uk

Agricultural
Subsidies in the
WTO Green Box
Ensuring Coherence with
Sustainable Development Goals

edited by
Ricardo Meléndez-Ortiz
Christophe Bellmann
Jonathan Hepburn

ICTSD
 Agriculture and sustainable development
Rising incomes, urbanization, and shifting consumption
patterns have increased food consumption in many areas of the
world. According to the Millennium Ecosystem Assessment,
the prospect of providing sufficient food to sustain another
2 billion people by 2020 has rightly focused attention on
the very real threats to food security if the productivity of
agricultural systems cannot keep pace with this demand.
As these systems are under increasing pressure to meet the
growing need for food, it is also vital that the environmental
challenges associated with food production are addressed
effectively – water pollution, pesticide use, land degradation
and greenhouse gas emissions, amongst others.
Government policies are a major driver of food production
and consumption patterns, both locally and globally.
In developed countries, government subsidies
stimulated over-production, while imports of politically
sensitive products remain heavily protected using tariffs
and other measures. Such policies have in turn undermined
developing countries’ ability to promote rural development,
and develop their export sectors. While national budget
concerns, political controversy and demands from trading
partners have initiated a shift away from the most damaging
types of subsidies, a significant proportion of developed
country spending remains linked to farm production levels.
The reform of the global agriculture trading system initiated
during the Uruguay Round attempts to correct these
inefficiencies by requiring heavily subsidising countries to
decrease their level of support over time. However the round
also established a special category of subsidies that are
exempt from reduction commitments. Developed countries
would be allowed to retain subsidies that deliver various
kinds of public goods in exchange for bringing agriculture
within the WTO system and committing to future reductions
have of trade-distorting support. Subsequently, the green box has
been increasingly seen as representing the future direction of
agricultural trade policy, with governments announcing that
they will decouple support from production, and notifying an
ever-greater share of subsidy spending as green box.

What is the green box?

The WTO Agreement on Agriculture negotiated in the Uruguay Round (1986-1994) includes the classification of sub-
sidies into ‘boxes’ depending on their effects on production and trade: amber (most directly linked to production
levels), blue (production-limiting programmes that still distort trade), and green (causing not more than minimal
distortion of trade or production).1While payments in the amber box had to be reduced, those in the green box
were exempt from reduction commitments. Detailed rules for green box payments are set out in Annex 2 of the
Agreement on Agriculture. However, all must comply with the ‘fundamental requirement’ in paragraph 1, to cause
not more than minimal distortion of trade or production, and must be provided through a government-funded pro-
gramme that does not involve transfers from consumers or price support to producers.

History
The idea of replacing agricultural price support with direct
payments to farmers decoupled from production dates back to
the late 1950s, when a Panel of Experts, chaired by Professor
Gottfried Haberler, was established at the at the twelfth
session of the GATT Contracting Parties to examine the
effect of agricultural protectionism, fluctuating commodity
prices and the failure of export earnings to keep pace with
import demand in developing countries. The 1958 Haberler
Report stressed the importance of minimising the effect of
agriculture subsidies on competitiveness, and recommended
replacing price support by direct supplementary payments
not linked with production, anticipating discussion on green
box subsidies. Only more recently, though, has this shift
from price support to producer support become the core of
the reform of the global agricultural system.
By the 1980s, government payments to agricultural producers
in industrialised countries had caused large crop surpluses,
which were unloaded on the world market by means of export
subsidies, pushing food prices down. The fiscal burden of
protective measures increased, due both to lower receipts
from import duties and higher domestic expenditure. In
the meantime, the global economy had entered a cycle of
recession, and the perception that opening up markets could
improve economic conditions led to calls for a new round of
multilateral trade negotiations.2 The round would open up
markets in services and high technology goods, and ultimately
generate much needed efficiency gains. With a view to engaging
developing countries in the negotiations, many of which were
“demandeurs” of new international disciplines, agriculture,
textiles and clothing were added to the grand bargain.

1
For more information, see http://www.wto.org/english/tratop_e/agric_e/agboxes_e.htm
2
Stancanelli, N. (2009), “The Historical Context of the Green Box”, In Agricultural Subsidies in the WTO Green Box: Ensuring Coherence
with Sustainable Development Goals. Eds. Meléndez-Ortiz, R., Bellmann, C., and Hepburn, J. Cambridge University Press, UK.

Agricultural Subsidies in the WTO Green Box:

2 September 2009
Ensuring Coherence with Sustainable Development Goals
In leading up to the 1986 GATT Ministerial Conference,
developed country farm groups that had benefited from
protectionist policies strongly resisted any
compromise on agriculture. In this context, the idea of
exempting production and ‘trade-neutral’ subsidies from
WTO commitments was first proposed by the US in 1987,
and echoed soon after by the EU.3 The proposal appeared
to have the merit of providing an adjustment mechanism
that could offset the potential losses that farmers might
incur as a result of the agricultural reform process. By
guaranteeing farmers a continuation of their historical level
of support, it also contributed to neutralising opposition to
the round. In exchange for bringing agriculture within the
disciplines of the WTO and committing to future reduction
of trade-distorting subsidies, developed countries would
be allowed to retain subsidies that cause ‘not more than
minimal trade distortion’ in order to deliver various public
specific policy objectives.
In a field so heavily riddled with controversy, this one
fragile point of consensus has been the hinge upon which an
extraordinary reform project has depended. As other types of
trade-distorting subsidies have been reduced over time, green
box subsidies have come under closer scrutiny. Do green box
measures affect production, and do these impacts generate
spill-over effects on other countries? Can green box rules be
improved in order to reduce the impacts on production? Is
it always possible to achieve domestic objectives with ‘not
more than minimal trade-distorting effects or effects on
production?’ Are the policy objectives upon which green
box subsidies depend themselves well defined?

Evolution of Reform: the EU, US and Japan

Domestic policy makers in the EU began to decouple
domestic support from production with the 1992
MacSharry reform, which introduced set-aside schemes
for crop production and agri-environmental payments.
Since then, agriculture support in the EU has been
significantly decoupled from production, and its focus has
switched from agriculture to the wider rural economy and
the protection of the environment. The 2003 CAP reform
created the Single Payment Scheme, which ensured that
future payments would no longer be linked to crops
culminating with the 1996 Freedom to Farm legislation,
which completely decoupled a portion of farm payments
from production. Since then, decoupled payments have
remained an important part of US farm policy even if
the move toward decoupling has been stalled or even
reversed in the 2008 farm bill (Fig. 1).5
Japanese agricultural policy remains dominated by price
support and high tariffs on key products such as rice.
Japan allocates high levels of green box subsidies in the

grown or animals kept.4 The expected dramatic increase
in green box spending is only partly evident in the EU’s
subsidy notifications to the WTO, however, as the most
recent of these only covers the 2005-06 marketing year
(Fig. 2). In the US, the economic philosophy of decoupling
began to play a role in farm policy as early as 1981,
form of general services, but has eliminated domestic
price supports leading to lower annual AMS (Fig. 3). In
2007, a new scheme was introduced under the Farm
Management Stabilization Programme to guarantee
large-scale farmers a certain level of income, regardless
of the commodities produced.6

Field of sunflower near Caldarusani Monastery, Flickr. Com Creative Common License 2.2

3
Stancanelli, N. (2009), “The Historical Context of the Green Box”, In Agricultural Subsidies in the WTO Green Box.
4
Swinbank, A. (2009), “The reform of the EU’s Common Agricultural Policy”, In Agricultural Subsidies in the WTO Green Box.
5
Orden, D (2009), ‘’Farm Policy Reform in The United States: Past progress and Future Directions.’’ In Agricultural Subsidies in the WTO Green Box.
6
Homna, M. “. (2009), “Agricultural trade policy reform in Japan”, Agricultural Subsidies in the WTO Green Box.

3
 Figure 1: US domestic support

de

Figure 2: EU domestic support

de

Figure 3: Japan domestic support

de

Source: Antón, J. (2009), “Agricultural support in the green box: an analysis of EU, US and Japanese green box spending.” Agricultural
Subsidies in the WTO Green Box.

Agricultural Subsidies in the WTO Green Box:

4 September 2009
Ensuring Coherence with Sustainable Development Goals
Focus, extent and economic impact: are green box subsidies
trade-distorting?
When comparing different countries’ green box
expenditures, it is important to note that the diversity of
payments types in this category means that spending can
have very different kinds of effects on trade. In 2007,
the US notified US$76.2 billion in green box payments:
however, of this, US$54.4 billion was on domestic food
aid, which is widely seen as assisting poor consumers
at the national level and having relatively little effect
Figure 4: EU Green Box Expenditure
Figure 5: US Green Box Expenditure
on international trade. In contrast, the EU notified in
2005 €48.28 billion (or $90.75 billion, of which €14.73
billion was on decoupled income support ($27.55 bn), a
category that has been much more controversial in the
eyes of the EU’s trading partners. The sharp increase in
decoupled income support reflects the result of the EU’s
2003 CAP reform, which introduced the new Single Farm
Payment for EU producers.
(j) Environmental progs
5
 Figure 6: Japan Green Box Expenditure

Source: Antón, J. (2009), “Agricultural support in the green box: an analysis of EU, US and Japanese green box spending.” Agricultural
Subsidies in the WTO Green Box.

One major concern with green box subsidies is whether or
not payments made under this category meet compliance
requirements described in paragraph 1 of Annex 2 of the
AoA. The WTO Panel on the cotton dispute between the
US and Brazil7 for example found that direct payments for
cotton farmers in the US did not qualify as green box because
producers were prohibited from planting fruits and vegetables,
and therefore effectively linked support with production.
Beyond compliance issues, the basic question remains as to
whether or not green box subsidies ultimately have distorting
effects on production and trade. Would the trade-liberalizing
impact of a reduction of one dollar in the amber box be
outweighed by the impact of a larger increase in the green
box? What types of effects on production and trade may
green box subsidies cause? While there are solid arguments
8
in favour of the more decoupled payments, a broad
consideration of the economic effects of such programmes
suggests that the absence of production and trade effects
is very unlikely. In the EU for example, payments under the
Single Payment Scheme are related to: the land area at a
farmer’s disposal in that year; the recipient’s status as a
farmer; whether the land has been kept in “good agricultural
or environmental condition;” and whether various cross-
compliance requirements have been respected. All these
reinforce the notion that payments are ‘related to, or based
on, the factors of production employed’. More broadly,
existing studies show that green box subsidies encourage
agricultural production by creating a guaranteed income
stream and a lower perceived income risk for farmers, which
raises the potential for overproduction.
Furthermore, cross-subsidisation, when subsidies on a
certain crop indirectly finance losses on another crop or on
total production, creates an exit-deterrence effect. Farms
are encouraged to produce what they otherwise would not,
and other farms that would be unprofitable producing only
a limited amount, find it profitable to produce a larger
amount to qualify for the subsidy.9 Finally, the G-20 has
argued that the accumulation of subsidies, when producers
receive simultaneously support classified under different
boxes, may present a cumulative impact on the producer’s
decision of what and how much to produce.
‘In the presence of distorting payments, ‘green’
policies do not properly perform their function. On
the contrary, their neutral nature is being abused
and they merely follow the general orientation
of the distorting policy. As a consequence, ‘green’
money is merely added to ‘blue’ and ‘amber’moneys
and becomes undifferentiated in relation to them.’ 10
- the G-20 developing country group in the WTO

7
US — Upland Cotton, Brazil vs. United States, DS267, http://www.wto.org/english/tratop_E/dispu_e/cases_e/ds267_e.htm
8
Galperin, C. and Miguez, I., (2009) “Green box subsidies and trade-distorting support: is there a cumulative impact?”. In Agricultural
Subsidies in the WTO Green Box.
9
De Gorter, H. (2009), “The distributional structure of US green box subsidies”, In Agricultural Subsidies in the WTO Green Box.
10
WTO document JOB (06)/145 Committee on Agriculture, Special Session, “G-20 Comments on the Chair Reference Paper on Green
Box”. May 16, 2006

Agricultural Subsidies in the WTO Green Box:

6 September 2009
Ensuring Coherence with Sustainable Development Goals
The green box and developing countries
Agriculture in developing countries has suffered from challenges: they will have to produce more food, with less
unfair competition in part due to subsidised exports in water, as more water is being used in cities, and in several
developed countries, and chronic underinvestment in cases, with lower productivity resulting from climate
infrastructure, research and development. With a a vast change including less precipitation and more extreme
share of their population depending on agriculture for weather. To what extent can green box subsidies support
their livelihood, developing countries face a set of major such adjustment in the developing world?

Figure 7: Green Box Expenditure as a Share of Total Support

Amber
Mexico
Thailand
India
Brazil
Colombia

Indonesia
Philippines
Chile
South Korea

China

Japan
US
Argentina
Malaysia
Venezuela

Pakistan
South Africa
Norway
EU
Switzerland

Source: Nassar et al (2009), “Agricultural subsidies in the WTO green box: opportunities and challenges for developing countries,”
Agricultural Subsidies in the WTO Green Box.11

An analysis of agriculture subsidy notifications to the WTO by In China’s case, the majority of green box support has
developing countries shows that a large portion of their total been concentrated on infrastructural services and public
domestic support falls under the green box. Nonetheless, stockholding. China is believed to have provided green
the amount spent as a share of agriculture GDP remains box subsidies worth as much as USD 33.8bn in 2005,
very low compared to some developed countries. Among compared to the USD 50.1bn provided by the EU and the
developing countries, payments are highly concentrated USD 71.8 bn provided by the US. However, support at
among a few, with China accounting for about 80 percent the individual farmer level is far below the per capita
(see Fig. 8).12 For most other developing countries, support of developed countries, but also lower than that
green box spending is relatively small in absolute terms. of several developing countries.13

11
Note: for each country, an average value of its last three WTO notifications was calculated. Argentina, 1999–2001; Brazil, 2001–2003;
Chile, 2000–2002; China, 1999–2001; India, 1995–1997; South Korea, 2002–2004; Malaysia, 1996–1998; Mexico, 2002–2004; Pakistan,
1997–1999; the Philippines, 1999–2001; Thailand, 2002–2004; South Africa, 2002–2004; Colombia, 2002–2004; Venezuela, 1996–1998;
Indonesia, 1998–2000; US, 2003–2005; Japan, 2001–2003; EU, 1999–2001; Norway, 1999–2001; Switzerland, 2002–2004.
12
Dhar, B. (2009), “Use of green box measures by developing countries: an assessment”. In Agricultural Subsidies in the WTO Green Box.
13
China has recently announced increases in subsidies, probably green box; however. it is unclear how these will affect future
notifications. See “Implications for China of the December 2008 Draft Agricultural Modalities,” by Tian Zhihong, http://ictsd.net/i/
publications/50467/

7
 Figure 8: Green Box spending by major developed countries and China

Japan

Figure 9: Green Box spending by major developing countries

Source: Papers by Dhar, B., and Antón, J, in Agricultural Subsidies in the WTO Green Box; also Tian, Z. (2009) “Implications for China of
the December 2008 Draft Agricultural Modalities,” and Gopinath, M and Laborde, D, (2008) “Implications for India of the May 2008 Draft
Agricultural Modalities,” ICTSD/IPC/IFPRI. Data for China (2002-2004) are ‘shadow notifications’ rather than officially notified figures,
as are data for India (1998-2004).14

14
Projections cited by Professor Tian suggest that, based on China’s notifications under current WTO commitments, their total green box
expenditure will reach about $67.5 billion by 2013. For more information, see “Implications for China of the December 2008 Draft
Agricultural Modalities,” by Tian Zhihong, http://ictsd.net/i/publications/50467/. Shadow notification data for India is drawn from
Gopinath, M and Laborde, D, “Implications for India of the May 2008 Draft Agricultural Modalities”, ICTSD/IPC/IFPRI, online at: http://
ictsd.net/downloads/2008/07/126.pdf

Agricultural Subsidies in the WTO Green Box:

8 September 2009
Ensuring Coherence with Sustainable Development Goals
African countries are spending less on agriculture
than other developing countries. However, green box
spending is decreasing while total public sector spending
is increasing, a trend which can be attributed to the
emphasis that poverty reduction strategy papers place on
social spending as opposed to agriculture. 15
Overall, the relatively low level of support to
agriculture in many developing countries has been seen
by some analysts as indicative of a broader pattern of
under-investment in developing country agriculture
rather than constraints that the green box criteria
impose on policy design (see Fig. 10). That said,
several countries have argued that certain restrictions
in disciplines governing the use of public stockholding
for food security purposes, disaster relief, or regional
assistance programmes have affected their ability to
use green box subsidies. 16

Figure 10: Green box expenditure and its relevance based on agricultural gross
domestic product

Green box as % of agriculture GDP

Low (<10%) High (>10%)

India ($128; 2%) China ($ 250; 14%)

Brazil ($ 56; 4%) EU-15 ($ 205; 12%)
Indonesia ($ 36; 0.5%) US ($ 125; 38%)
Pakistan ($ 20, 1.7%) Japan ($ 76; 30%)
Mexico ($ 24; 8%) South Korea ($ 22; 22%)
High Australia ($ 20; 6%)
(> US$ 10bn) Thailand ($ 16; 9%)
Argentina ($ 15; 1.7%)
Philippines ($ 13; 2%)
Colombia ($ 12; 1.5%)
Malaysia ($ 11; 2%)

Agriculture Morocco ($ 7.8; 5%) South Africa ($ 6.4; 11%)

GDP New Zealand ($ 7.3; 3%) Switzerland ($ 4.4; 49%)
Chile ($ 5.0; 4%) Venezuela ($ 4.4; 15%)
Peru ($ 4.7; 3%) Norway ($ 3.6; 16%)
Kenya ($ 4.1; 2%) Israel ($ 1.9; 17%)
Tunisia ($ 3.3; 2%) Zambia ($ 1.2; 16%)
Low Dominican ($ 2.0; 2%) Jordan ($ 0.3; 12%)
Republic Trinidad and ($ 0.1; 16%)
(> US$ 10bn)
Uruguay ($ 1.5; 3%) Tobago
Costa Rica ($ 1.5; 2%)
Paraguay ($ 1.4; 1.5%)
Honduras ($ 0.9; 1.1%)
Nicaragua ($ 0.8; 1.2%)
Jamaica ($ 0.5; 1.3%)

Source: USDA, author’s elaboration; in Nassar et al (2009). “Agricultural subsidies in the WTO green box: opportunities and challenges for
developing countries,” Agricultural Subsidies in the WTO Green Box.

15
Oduro, A. (2009) “African countries and the green box”. In Agricultural Subsidies in the WTO Green Box.
16
Oduro argues for example that, in the case of payment for relief from natural disasters, the initial requirement that the production
loss should exceed 30 percent is particularly stringent for small-scale farmers for whom a much smaller production loss could have
a significant impact on their incomes and welfare. She also recommends exempting developing countries from the condition that
payments under regional assistance programmes can only be made when a disadvantaged region is a clearly designated contiguous
geographical area with a defined economic and administrative identity. She advocates explicit provision for spending to address
land reform and farmer settlement programmes in general and proposes, in the case of public stock holding, the striking out of the
requirement that the difference between the acquisition and external reference be included in the calculation of the Aggregate
Measure of Support. Proposals along these lines have indeed been under extensive consideration at the WTO, and appear likely to be
adopted as part of an eventual Doha Round agreement.

9
 The green box and the environment
Thriving wildlife, beautiful landscapes and clean water
are all products of agriculture. While wider society values
these outcomes, this often is not reflected in market value.
This may result in a market failure in which sub-optimum
levels of these public goods are delivered, resulting
in biodiversity decline, water pollution and degraded
landscapes and soils. In this context, the question is not
so much whether government intervention is needed, but
rather whether green box subsidies are the most effective
tools in delivering these public goods.
Since the 1980s, subsidies have become a large component
of farmers’ incomes and consequently of land use decisions.
The way in which these subsidies are allocated plays a
major role in shaping land use patterns, particularly in the
EU and the US, and therefore has important impacts on
the environment in rural areas.
Amber box subsidies often create the strongest incentives for
increasing outputs, intensifying the use of chemical inputs,
and thus negatively affecting the environment. In principle,
reducing amber box expenditure and increasing green box
expenditure should thus be good for the environment.17
Modern agriculture’s contribution to greenhouse gas
emissions is indeed symptomatic of this reality. The
production of fertiliser is not only energy intensive; it
acidifies the soil, requiring the regular application of
Shredded wheat farm by ricmarthur Flickr.com Creative Common License 2.2
17
Steenblik, R, and Tsai, C (2009), “The environmental impact of green box subsidies: exploring the linkages”. In
Agricultural Subsidies in the WTO Green Box.
18
Cavero, T. (2009), “Subsidy reform in the EU context: options for achieving change”. In Agricultural Subsidies in
the WTO Green Box.
Agricultural Subsidies in the WTO Green Box:
10
Ensuring Coherence with Sustainable Development Goals
lime which in turn produces more carbon dioxide. From
an environmental perspective, organic agriculture is
probably one of the best alternative production methods
available in reducing greenhouse gas emissions and
enhancing sustainable practices. In most cases, however,
these production methods are not economically viable and
require support from the government.18
While some green box subsidies are closely targeted
at the achievement of concrete environmental goals,
others remain little more than disguised income support
payments, and some may even provide support for
activities that are damaging to the environment. In the
EU, the 2003 decoupling reform was effective in removing
the incentive to overproduce, while also establishing
several schemes with explicit environmental objectives.
However, such environmental programmes are only
effective if they have clear goals expressed in terms of
measurable outcomes and target. Without strict rules to
ensure its proper use, Brunner and Huyton argue that the
tool will be abused both accidentally and wilfully, as a
means for disguising income or even production support.
This is particularly apparent in cases where the cost to the
farmer is disproportionately small relative to the size of the
payments. The authors report that, on a 181-ha arable farm
in Cambridgeshire, England, the costs of implementing
cross-compliance were approximately €27, although the
September 2009
farm received some €27,000 in direct payments.19 In the
US, Jane Earley goes further in arguing that green box
payments have perpetuated environmental problems in
that they encourage production on marginal lands, for
example through regular disaster assistance or some farm
credit, and incentivise maintaining production rather than
retiring land in environmentally fragile areas.20
For Steenblik and Tsai, some policies are less cost-effective
than they might otherwise be, because they have been
designed to conform with green box criteria rather than
to achieve an environmental objective21. For example,
the green box requires environmental payments to be
based exclusively on “the extra costs or loss of income
involved in complying with the government programme.”
Although this formula can work in intensive agricultural
landscapes where payments are being made for some
form of extensification, it is much harder to apply to
situations where the benefits are already being delivered
and there is very little income in the first place. In other
words, it is also good economic and environmental sense
to focus conservation efforts on maintaining existing
biodiversity rather than losing it and paying to recreate
it in the future.
Josling and Blandford note the a priori assumption that
biofuel subsidies that expand corn and soybean production
are ill-suited for the green box. As they note, “payments
that take crops off the food market and into the energy
market would in ‘normal’ circumstances be seen to be
helping to reduce the oversupply of farm products and raise
agricultural prices. From this point of view, why should
other activities that are included under rural development
policies (for example, the development of ecotourism)
be encouraged and rewarded but biofuel production be
penalized?” Arguably, the green box was designed for the
support of public goods. Josling and Blandford ask whether
or not the case could be made that ethanol and biodiesel
are beneficial to society and should be encouraged. The
question then becomes how to encourage biofuels without
discriminating against imported sources of, say ethanol from
Brazil, or without providing an incentive to export biofuels.22

Pig by Howard Gees , Flickr. Com Creative Common License 2.2

19
Brunner, A. and Huyton, H. (2009), “The Environmental Impact of European Union green box subsidies”. In Agricultural
Subsidies in the WTO Green Box.
20
Earley, J. (2009), “The Environmental Impact of US green box subsidies”. In Agricultural Subsidies in the WTO Green Box.
21
Steenblik, R, and Tsai, C (2009), “The environmental impact of green box subsidies: exploring the linkages”. In Agricultural
Subsidies in the WTO Green Box.
22
Josling, T. and Blandford, D. (2009), “Biofuels subsidies and the green box”. In Agricultural Subsidies in the WTO Green Box.

11
 Rural development and equity
The shift towards decoupled supports designed to sustain
farm incomes and the wider rural economy responds
partly to a genuine public concern for the welfare of small
farmers and for the need to promote equity. As green box
support come under closer public scrutiny, this raises the
issue of the distributional structure of green box subsidies.
It is difficult politically to defend to taxpayers a system
that absorbs 50 percent of the European budget, benefits
roughly two percent of the population, and concentrates
80 percent of support on 20 percent of farmers. 23
Similarly, Harry de Gorter finds that, in the US, “the
distribution of farm payments is skewed towards the
large farm that needs the government payments less.
Large farms derive a disproportionate share of their farm
income from government payments in total.… Large farms
make significant income from farming and so should not
need taxpayer support as much as small farmers, yet the
former receive by far the largest share of payments.”24
Interestingly, in Japan, Homma argues that if the
country’s agriculture is to become competitive, direct
payments should be targeted to large-scale farmers.25
Recent assessments of the CAP reform tend to show that
in most EU countries the benefits of farm programs were,
de facto, passed on to the owners of primary factors such
as land or production rights whereas labour only keeps a
fraction of the support.26
In this context, Teresa Cavero argues that “to tackle properly
the needs of small farms, direct payments should not be
based on historical acreage or anticipated crop yields but
rather on the basis of a farmer’s financial need”. 27 She notes
that a cap on payments, imposing upper and lower limits,
is one obvious measure that can be taken – such as the
300,000 euro maximum subsidy per recipient suggested
by EU Agriculture and Rural Development Commissioner
Mariann Fischer Boel. Cavero points out that “this would
affect 0.04 percent of farms, mostly in Germany and the
UK, releasing close to €1bn.”
In 2005, the G-20 proposed amending the
requirements for decoupled income support
payments (paragraph 6, Annex 2 of the Agreement
on Agriculture). Text proposed for deletion is
crossed out, and new insertions are underlined:
Eligibility for such payments shall be
determined by clearly-defined criteria
such as of low levels of income, status as
a producer or landowner, landholding and
production level in a notified, defined
and fixed and unchanging base period.
However, in April 2006, the chair of the negotiations
on agriculture noted “firm resistance” to all the
G-20’s proposals on decoupled income support.

Chickens by Broterham, Flickr. Com Creative Common License 2.2

23
Cavero, T. (2009), “Subsidy reform in the EU context: options for achieving change”. In Agricultural Subsidies in the WTO Green Box.
24
De Gother, H (2009) ‘’The International structure of US green box subsidies In AG Subsidies in Other WTO Green Box.’’
25
Homna, M. (2009), “Agricultural trade policy reform in Japan”. In Agricultural Subsidies in the WTO Green Box.
26
See, Bureau and Mahé, “CAP Reform beyond 2013: An Idea for a Longer View”, Notre Europe, Studies and Research No 64, 2008.
27
Cavero, T. (2009), “Subsidy reform in the EU context: options for achieving change”. In Agricultural Subsidies in the WTO Green Box.

Agricultural Subsidies in the WTO Green Box:

12 September 2009
Ensuring Coherence with Sustainable Development Goals
Doha Round negotiations
In the Doha Round of negotiations at the WTO, efficient
agricultural exporters such as those in the Cairns Group have
expressed concerns about the extent to which green box
programmes may be causing more than minimal distortion
to production and trade, and the possibility that existing
green box criteria may need to be tightened in order to
ensure consistency with the fundamental requirement set
out in paragraph 1. A number of developing countries have
also expressed similar concerns, with the G-20 in particular
emphasising these after its formation in 2003. Both the
Cairns Group and the G-20 have historically sought to
establish a cap or reductions on green box subsidies.
In contrast, members of the import-sensitive G-10 group of
countries, which includes Japan, Norway and Switzerland, have
argued that there is only a limited mandate for changes to the
green box. They have historically emphasised the role of green
box programmes in addressing countries’ ‘non-trade concerns’,
and have argued that agriculture has a ‘multifunctional’ role
in delivering other public goods in parallel.
The EU and US have also resisted substantial reform of the
green box. The EU has taken positions that are close to
those espoused by the G-10, in the past suggesting that,
if anything, the green box should be expanded in order
to take into account issues such as animal welfare. Like
Canada, however, the US has supported modest changes
to the green box to cover, for example, experience with
implementing disaster relief programmes.
Cow herd by James Jordan, Flickr.com Creative Common License 2.2
A number of developing countries, including G-20
members and the African Group, have consistently
underscored the need for the green box to be amended so
as better to reflect developing countries’ concerns. Many
have argued that the green box, in the form in which it
was devised during the Uruguay Round, primarily reflects
developed country programmes and is therefore ill suited
for developing countries to use. They have pushed for
specific changes to rectify what they see as imbalances in
the existing text.
Broadly speaking, the resistance of importing countries
to many of the more far-reaching proposals put forward
by exporting countries, combined with the resistance of
the latter to any dramatic expansion of the green box
to address additional ‘non-trade concerns’, has meant
that the negotiations have focused relatively heavily on
modifications aimed at providing greater flexibility to
developing countries.
Figure 11 below summarises the main negotiating positions
historically taken by Members, simplifying in some cases
the more nuanced arguments around the various issues.
While the debate on green box criteria has increasingly
narrowed down to a handful of measures that Members
feel are politically feasible, some of the issues that
negotiators raised early on in the round may still resurface,
for example as part of a post-Doha agenda of negotiations
on agricultural trade reform.
13
 Figure 11: Membersʼ positions on some key issues in the green box negotiations

African ‘Like-minded Cairns

G-20 Canada US EU G-10
Group group’ Group

Cap / reductions? Yes Yes Yes Yes Yes No No No

Ensure base periods Yes Yes Yes Yes Yes Allow Allow Allow
are ‘fixed and occasional occasional occasional
unchanging’? updates updates updates

Preclude new types Yes Yes No No No

of direct payments?

Time limit Yes Yes No No No

structural
adjustment
payments?
Substantial Yes Yes Yes
new flexibility
for developing
countries?

New flexibility Yes Yes Yes Yes Yes

for disaster relief
payments?

Expand to cover No No No No No No Yes Yes

new ‘non-trade
concerns’?

Source: J. Hepburn and C. Bellemann (2009), “Doha Round negotiations on the green box and beyond.” Agricultural Subsidies in the
WTO Green Box.

Looking forward: How can change take place?

Green box reform remains on the agenda of the Doha Round,
although – as noted above – negotiations have increasingly
focused on a limited set of changes primarily aimed at
ensuring that developing countries will be able to make use
of this category of payments without undue difficulty. In the
meantime, green box criteria could be reinforced through
panels and litigation. As an increasing proportion of subsidies
are being categorized as green box payments, poor
compliance with existing criteria is at least an important
an issue as the adequacy of the criteria themselves.
Deficiencies in the current monitoring mechanism
relate both to delays in notifications and the type of
information notified to the WTO. For example, in the
EU, notification reports do not specify how the green box
is divided between Member States. Chatellier examines
this by comparing the EU’s figures with national data
in France, and finds that national public expenditures
which would theoretically fall into the green box
appeared to be higher than those notified by the EU.28
For Cerda, an effective monitoring mechanism would
require “full transparency, making explicit all criteria
of eligibility and the specific ways in which they are
fulfilled, and providing as much information as possible
on type, volume and area of production of payment
recipients, starting from base levels.29
In the longer term, several authors agree that any
significant reform implies a new approach altogether –
moving away from the amber, blue and green categories.

28
Chatellier, V. (2009), “The distributional structure of green box subsidies in the European Union and France”. In Agricultural Subsidies
in the WTO Green Box.
29
Cerda, A. (2009), “Improving monitoring and surveillance of green box subsidies”. In Agricultural Subsidies in the WTO Green Box.

Agricultural Subsidies in the WTO Green Box:

14 September 2009
Ensuring Coherence with Sustainable Development Goals
The Uruguay Round set the stage for the establishment of a
“fair and market oriented agricultural trading system,” but
this goal still remains to be achieved. As trade distorting
measures are phased out, the remaining domestic support
would thus include green box measures, paragraph 6.2
(special and differential treatment) and a “de minimis”
clause. Under this scenario, de Camargo and Henz argue
that a reviewed and improved green box classified as
non-actionable subsidies in Part IV of the SCM Agreement
would become the central element of the WTO agriculture
disciplines as the only support accepted at the end of the
reform process.30
This approach raises a fundamental question about the
underlying purpose of the green box. Are green box subsidies
a temporary adjustment tool, or do they perform a permanent
function of correcting market failures and delivering public
goods? Tutwiler notes that “the concept that tax revenue
should provide for public goods that are available to the
citizenry as a whole and not be transferred to a few private
citizens - or “public money for public goods” - has become a
mantra in European policy reform circles, but did not take
hold in the United States.31 From a sustainable development
perspective, the notion of targeted, non trade distorting state
interventions to address market failure and deliver essential
public goods is clearly more attractive. It does however raise a
few questions. Are direct payments the best tool for achieving
social and environmental goods? Should it be permissible to
continue to subsidize production on some of the world’s
largest and most profitable farms? The possibility of
permanent government support inevitably raises the issue of
inequity between developed and developing countries, given
that the latter probably will not have the resources to
provide the support in order to deliver public goods. This
calls for a wider debate going beyond trade negotiations and
involving the notion of cross-border financing as an integral
part of any eventual solution. Unless policymakers and all
other stakeholders examine these questions, they arguably
risk undermining the entire structure of agricultural policy
reform on which the long-term stability of the broader
multilateral trading system depends.

Farm by hockadilly, Flickr.com Creative Common License 2.2

30
De Camarago Neto, P, and Henz, R. (2009), “Towards a green box subsidy regime that promotes sustainable development: strategies
for achieving change”. In Agricultural Subsidies in the WTO Green Box.
31
Tutwiler, A. (2009), “Subsidy reform in the US context: deviating from decoupling”. In Agricultural Subsidies in the WTO Green Box.

15
 Agricultural Subsidies in the WTO Green Box:
Ensuring Coherence with Sustainable Development Goals

“This book constitutes a long-awaited and valuable contribution to clarifying what has become the core of
agricultural negotiations: the fear that abusive migration toward so-called green-box subsidies might render
meaningless any apparent progress in reduction of the more obvious distorting modalities. It is a well-balanced
and thoughtful analysis of all relevant arguments in the debate and provides trade negotiators with an enlightened
guidance to help the Doha Round deliver on its promise of putting world trade to the service of development needs
and environmental improvement.”

Ambassador Rubens Ricupero,

Former Secretary-General of the United Nations Conference on Trade and Development (UNCTAD)

“The meaning and practice of Green Box subsidies is central to the future of agriculture reform. This collection of
essays provides an excellent, thorough and comprehensive analysis of this complex topic which has great ramifications
for developing countries agriculture. A must-read for all stakeholders!”

Eveline Herkens,
Special Advisor to the UN Millennium Campaign and former Netherlands Minister for Development Cooperation

“I find it the most comprehensive book that I have read so far on Green Box Subsidies in the context of existing
WTO Law and the WTO DDA negotiations. It should be a must-read for all those concerned with and interested in
appreciating the implication of green box subsidies to the world trade in agricultural products, food security in the
developed, developing countries and LDCs, as well as the protection of the environment.”

Ambassador Arsene M. Balihuta,

Permanent Representative to the WTO at the Mission of Uganda in Geneva

“ICTSD has done the cause of agricultural trade reform a genuine service with its initiative to commission and edit this
collection of papers on the impacts of existing Green Box subsidy expenditures and the case for changes in the WTO rules
governing them. The book brings together thoughtful contributions from some of the best known experts in the field …
[It] is a valuable compilation of analysis, comment and suggestions on the issues and deserves wide exposure.”

Joanna Hewitt,
Former lead Australian WTO negotiator and previous Head of Division in the OECD’s Agriculture Directorate

“This volume is most timely and relevant to the current Doha Round negotiations. The various chapters in the volume
address all the above issues from an expert, NGO and government negotiators perspective. It is essential reading
for all those interested in a sustainable and development oriented outcome of the Doha Round multilateral trade
negotiations.”

Faizel Ismail,
Head of the South African Delegation to the WTO

The International Centre for Trade and Sustainable Development (www.ictsd.org) is an independent non-profit and non-governmental
organisation based in Geneva. Established in 1996, ICTSD’s mission is to advance the goal of sustainable development by empowering
stakeholders to influence trade policy-making through information, networking, dialogue, well-targeted research and capacity-
building. This Information Note is produced as part of ICTSD’s Programme on Agricultural Trade and Sustainable Development. More
information about ICTSD activities in this area can be found on: www.ictsd.org

ISSN 1817 3551